CAD remains quite tied to the domestic US story, and therefore to the USD itself. Should we see a fully-fledged risk-on rally on the back of a clear softening in US data, expect CAD underperformance compared to other pro-cyclicals.

A more conservative scenario, where markets have to ‘hold their horses’ on the USD decline/Fed peak story for a bit longer can make CAD stand out.

In all cases, the attractive volatility-adjusted carry means USD/CAD can hit 1.25-1.27 by mid-2024.